R.Upendran (HUF), CHENNAI V. ITO, CHENNAI

ITA 1188/CHNY/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4087 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-07-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 19-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 19-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V SREENIVASAN JICIT D R
• Assessee Lawyers: J SANTHANA GOPALAN
• Section: 54; 6

Judgement Text

, C/ SMC , IN THE INCOME TAX APPELLATE TRIBUNAL C/SMC BENCH, CHENNAI . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER I.T.A.NO.1188 /MDS./2015 ( ASSESSMENT YEAR : 2010-11)) M/S.R.UPENDRAN (HUF ), NO.54 & 55, KUTCHERY ROAD, MYLAPORE, CHENNAI 600 004. VS. THE INCOME TAX OFFICER, BUSINESS WARD II(1), CHENNAI-34. PAN AAMHR 1708 L ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : MR.J.SANTHANAGOPALAN, C.A / RESPONDENT BY : MR.V.SREENIVASAN, JICIT, D.R ! ' / DATE OF HEARING : 20.06.2017 #$%& ! ' /DATE OF PRONOUNCEMENT : 03.07.2017 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL IS FILED BY THE ASSESSEE, AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(A)-2, CHENNA I DATED 20.02.2015 PERTAINING TO ASSESSMENT YEAR 2010-11. ITA NO. 1188/MDS/2015 2 2. THE MAIN GRIEVANCE OF THE ASSESSEE IN ITS APPEA L IS WITH REGARD TO NON-GRANTING OF DEDUCTION U/S.54 OF THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A HUF AND FILED THE RETURN OF INCOME FOR THE A.Y. 2010-11 ON 21.03.2012 ADMITTING NIL INCOME. THE CASE WAS SELECTED FOR S CRUTINY AND NOTICE U/S 143(2) OF THE ACT WAS ISSUED ON 07.09.2012..AFT ER HEARING THE APPELLANT, THE AO COMPLETED THE ASSESSMENT U/S 143( 3) OF THE IT ACT ON 28.03.2013 DETERMINING THE TOTAL INCOME OF ` 41,43,907/-. DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 2010-11, THE ASSESSEE HAS SOLD A PROPERTY AT FLAT T2, GLAND MARV EL LAKSHMI NIVAS ILL FLOOR, OLD DOOR NO.25, NEW NO.2/8, 7TH M AIN ROAD, RAJA ANNAMALAIPURAM, CHENNAI-28 FOR A CONSIDERATION OF ` 81,00,000/-. THE SALE WAS REGISTERED OLD NO. 18.11.2009. THE ASS ESSEE HAS CLAIMED EXEMPTION U/S. 54 OF ` 45,26,045/- FOR THE CAPITAL GAIN ARISEN OUT OF THE ABOVE SALE. IT IS CLAIMED BY THE ASSESSE E THAT HE HAS INVESTED FOR ADDITIONAL CONSTRUCTION IN THE FIRST F LOOR, SECOND FLOOR AND THIRD FLOOR AT 54 & 55 KUTCHERY ROAD, MYLAPORE. THE DETAILS FOR THE SAME WERE CALLED FOR. IT IS NOTICED THAT THE AS SESSEE HAS STARTED THE CONSTRUCTION OF THIRD FLOOR AND FOURTH FLOOR ON 23.01.2009, WHICH ITA NO. 1188/MDS/2015 3 IS PRIOR TO THE DATE OF SALE OF THE PROPERTY. FURTH ER THE ASSESSEE HAS NOT DEPOSITED ANY UNUTILIZED AMOUNT IN ANY CAPITAL GAIN TAX. FROM THE FOREGOING, IT IS CLEAR THAT THE ASSESSEE HAS VI OLATED THE PROVISIONS U/S. 54 ON THE FOLLOWING COUNTS: (A) THE CONSTRUCTION STARTED MUCH EARLIER TO THE DA TE OF TRANSFER WHICH IS CONTRAIY TO THE CONDITION LAID DOWN U/S. 54(1) O F THE INCOME TAX ACT (B) THE ASSESSEE HAS NOT DEPOSITED THE AMOUNT NOT U TILIZED FOR THE CONSTRUCTION IN THE CAPITAL GAIN ACCOUNT THEREBY VI OLATING THE PROVISIONS OF 54(2) OF THE INCOME TAX ACT. HENCE, THE AO REJECTED THE CLAIM U/S.54 OF THE ACT. AGGRIEVED, THE ASSESSEE HAS PREFERRED THE APPEAL BEFORE THE FIRST APPELLATE AUTHORITY I.E CIT(A) FOR THE REJECTION OF EXEMPTIO N U/S.54 TO THE TUNE OF ` 45,26,045/- CLAIMED BY IT. 3.1 ON APPEAL, THE LD.CIT(A) CONFIRMED THE ORDER O F LD. ASSESSING OFFICER AND OBSERVED THAT THE ASSESSEE SUBMITTED B EFORE THE AO THAT OUT OF RS.81 LAKHS RECEIVED FROM THE SALE OF THE PR OPERTY, RS.45.26 LAKHS WERE USED FOR THE CONSTRUCTION OF 3 RD & 4 TH FLOOR. THERE WAS NO EVIDENCE BEFORE THE AO ON THE TREATMENT GIVEN TO TH E BALANCE AMOUNT. THE LD.A.R REITERATED THE ONLY POINT THAT THE CONSTRUCTION OF ITA NO. 1188/MDS/2015 4 SECOND PROPERTY WAS COMPLETED WITHIN 3 YEARS FROM T HE DATE OF SALE OF THE FIRST PROPERTY. 3.2 ACCORDING TO LD.CIT(A), THE SALE PROCEEDS OF ONE PROPERTY ARE TO BE UTILIZED IN THE PURCHASE OR CONSTRUCTION OF A NOTHER PROPERTY TO AVAIL THE BENEFIT. IN OTHER WORDS, THE CAPITAL GAIN S BENEFIT U/S 54 IS NOT AVAILABLE AUTOMATICALLY WHEN THE FUNDS WERE NOT USE D FOR PURCHASE OR CONSTRUCTION OF ANOTHER NEW PROPERTY. SINCE IN THE INSTANT CASE THE ASSESSEE HAS CONSTRUCTED THE PROPERTY WITH OWN FUND S BEFORE THE SALE OF THE OLD PROPERTY AND AS HE HAS NOT DEMONSTR ATED THAT THE SALE PROCEEDS WERE UTILIZED FOR THE CONSTRUCTION, THE AP PELLANT CANNOT GET THE BENEFIT U/S 54 AUTOMATICALLY. ADMITTEDLY, IT IS NOT A CASE OF USE OF SALE PROCEEDS IN THE CONSTRUCTION OF A NEW PROPERTY , SIMPLICITER. IN THE INSTANT CASE, THE NEW CONSTRUCTION IS A MULTI-STORI ED BUILDING WHERE GROUND + 2 FLOORS WERE ALREADY BUILT MUCH PRIOR TO THE SALE OF THE OLD PROPERTY WITH OWN FUNDS. THE CONSTRUCTION OF 3 RD AND 4 TH FLOOR HAS FALLEN BETWEEN 23.1.09 TO 12.11.12 WHICH MEANS THAT EVEN CONSTRUCTION OF THESE TWO FLOORS HAS BEEN STARTED 1 0 MONTHS PRIOR TO THE DATE OF SALE. IN A SENSE, THE 3D AND 4TH FLOOR ARE AN EXTENSION OF EXISTING GROUND + 2 FLOORS BUT NOT A FRESH CONSTRUC TION. ACCORDING TO ITA NO. 1188/MDS/2015 5 LD.CIT(A), THE PURPOSE OF THE BENEFIT AVAILABLE IN SEC.54 OF THE ACT IS THAT THE ASSESSEE SHOULD NOT GO HOMELESS AFTER T HE SALE OF A RESIDENTIAL PROPERTY AND THE EMPHASIS IS ON THE USE OF THE SALE PROCEEDS OF THE PURCHASE OR CONSTRUCTION OF A SUBSE QUENT RESIDENTIAL PROPERTY. HENCE, THE LD.CIT(A) DISMISSED THE APPEAL ON THE GROUND THAT THE ASSESSEE FAILED TO FURNISH ANY EVIDENCE WI TH REGARD TO THE BALANCE AMOUNT OF ` 35,74,000/-. AGAINST THE ORDER OF LD.CIT(A), NOW THE ASSESSEE IS IN APPEAL BEFORE US. 4. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. THE ASSESSEE SOLD THE PROPERTY ON 18.11.20 09 FOR CONSIDERATION OF ` 81/- LAKHS AT FLAT T2, GLAND MARVEL LAKSHMI NIVAS ILL FLOOR, OLD DOOR NO.25, NEW NO.2/8, 7TH MAIN ROA D, RAJA ANNAMALAIPURAM, CHENNAI-28. THE ASSESSEE FILED ITS RETURN OF INCOME ON 21.03.2012 AND ADMITTED THE CAPITAL GAINS DERIVED FROM THIS SALE TRANSACTION AT ` 37,48,593/-. THE ASSESSEE COMMENCED CONSTRUCTION OF THIRD FLOOR ON 23.01.2009 , WHICH W AS COMPLETED ON 28.07.2010 & FOURTH FLOOR, WHICH WAS COMPLETED ON 1 2.11.2012. THE PLEA OF THE LD.A.R IS THAT EVEN EXPANSION OF EXISTI NG RESIDENTIAL HOUSE IS ALSO ENTITLED FOR DEDUCTION U/S.54 OF THE ACT. I N MY OPINION, HOUSE ITA NO. 1188/MDS/2015 6 PROPERTY IN SECTION 54 TAKES INTO ACCOUNT ALL IND EPENDENT RESIDENTIAL UNIT AND COMPLETE HOUSE. INDEPENDENT RESIDENTIAL UN ITS, PARTICULARLY IN THESE DAYS WHEN MULTI-STOREYED FLATS ARE BECOMING THE ORDER OF THE DAY. IN THIS CASE, IF THE ASSESSEE INVESTED THE CA PITAL GAINS IN THE CONSTRUCTION OF FURTHER FLOOR IN THE EXISTING BUILD ING AND EVEN IF IT WAS COMMENCED BEFORE THE SALE OF THE ORIGINAL RESIDENTI AL HOUSE, BENEFIT OF SEC.54 TO BE GIVEN. FOR THIS PURPOSE, I PLACE RE LIANCE IN THE JUDGEMENT OF DELHI HIGH COURT IN THE CASE OF ADDITI ONAL CIT VS. VIDYA PRAKASH TALWAR IN [1981] 132 ITR 661 (DEL). FURTH ER, WE MAKE IT CLEAR THAT EVEN THE COMMENCEMENT OF CONSTRUCTION OF A RESIDENTIAL HOUSE BEFORE TRANSFER OF THE PROPERTY DOES NOT DIS ENTITLE THE ASSESSEE CLAIM DEDUCTION U/S.54 OF THE ACT. FOR THI S PROPOSITION, WE TAKE SUPPORT THE DECISION OF KARNATAKA HIGH COURT I N THE CASE OF CIT VS. J.R.SUBRAMANYA BHAT IN [1986] 28 TAXMAN 578(KA R.). FURTHER, THE OBJECTION OF THE LD.D.R IS THAT THE ASSESSEE HA D NOT UTILIZED THE CONSIDERATION RECEIVED ON THE SALE OF ORIGINAL PROP ERTY TO CONSTRUCT THE NEW RESIDENTIAL PROPERTY. AS RIGHTLY POINTED OUT B Y THE LD.A.R, THE LAW DOES NOT CONTEMPLATE THE IDENTITY OF FUNDS FOR INVE STMENT IN THE CONSTRUCTION OF A NEW HOUSE OR RESIDENTIAL PROPERTY , IF THE ASSESSEE ITA NO. 1188/MDS/2015 7 STARTED THE CONSTRUCTION BEFORE THE TRANSFER OF PRO PERTY BY BORROWING THE FUNDS OR USING HIS OWN FUNDS, THE ASSESSEE CANN OT BE PRECLUDED FROM CLAIM DEDUCTION U/S.54/54F OF THE ACT. THIS VI EW IS ALSO TAKEN BY THE CO-ORDINATE BENCH IN THE CASE OF MUNEER KHAN VS . INCOME TAX OFFICER IN 92010) 41 SOT 504 (ITAT HYD.). FURTHER, IT IS ALSO NOTED THAT THE CO-ORDINATE BENCH OF CHENNAI RECENTL Y IN THE CASE OF SMT.USHA IN ITA NO.2033/MDS./2016 VIDE ORDER DATED 26.04.2017 OBSERVED HEREIN UNDER:- 8.1 WE FIND A FORCE IN THE ARGUMENT OF THE ASS ESSEE FOR THE REASON THAT THE ACT DOES NOT DESCRIBE ANY CONDITION AS TO THE D ATE OF COMMENCEMENT OF CONSTRUCTION OF A NEW HOUSE PROPERTY. THE ONLY CONDITION IS THAT CONSTRUCTION OF HOUSE PROPERTY SHOULD BE COMPLETED WITHIN THREE YEARS FROM THE DATE OF TRANSFER. THE DATE OF COMMENCEMEN T OF CONSTRUCTION IS IRRELEVANT AND THE CONSTRUCTION MAY BE COMMENCED EV EN BEFORE THE TRANSFER OF ASSET AS HELD BY DELHI HIGH COURT IN TH E CASE OF CIT VS. BHARTI MISHRA REPORTED IN [2014] 41 TAXMANN.COM.50(DELHI). FURTHER, HIGH COURT OF KARNATAKA IN THE CASE OF CIT VS.J.R.SUBRAMANYA B HAT IN [1986] 28 TAXMAN 578 (KAR.) HAS TAKEN A SIMILAR VIEW, WHICH W AS IN TURN FOLLOWED BY ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. H.K.KAP OOR IN [1998] 234 ITR 753 (ALLAHABAD). FURTHER, THE ANDHRA PRADESH HIGH COURT AND TELANGANA IN THE CASE OF LEARNED COMMISSIONER OF INCOME TAX V S. SMT. V.VENKATA LAXMI IN [2015] 59 TAXMANN.COM 216 HELD THAT WHERE INVESTMENT IN CONSTRUCTION OF A NEW BUILDING IS MADE WITHIN 3 YEA RS OF SALE OF THE PROPERTY, THE BENEFIT OF SEC.54 IS TO BE GIVEN. TH US, AS SEEN FROM THE FACTS BROUGHT ON RECORD, THE ASSESSEE COMPLETED THE CONST RUCTION IN DECEMBER, ITA NO. 1188/MDS/2015 8 2006 AS EVIDENCED BY THE LETTER DATED 19.03.2017 IS SUED BY M/S.ARUN EXCELLO BUILDER. FURTHER, IN THE PRESENT CASE, THE LD. LEARNED COMMISSIONER OF INCOME TAX(A) ACCEPTED THAT THE CON STRUCTION WAS COMPLETED WITHIN 3 YEARS FROM THE DATE OF SALE OF C APITAL ASSET. HOWEVER, HE RESTRICTED THE EXEMPTION 20% OF COST OF CONSTRUC TION, WHICH IS NOT APPROPRIATE. THERE IS NO QUESTION OF GIVING PARTIA L RELIEF TO THE ASSESSEE, EVEN AFTER APPRECIATING THE FACT THAT THE ASSESSEE HAS COMPLETED THE CONSTRUCTION WITHIN THREE YEARS ON SALE OF THE CAPI TAL ASSET. FURTHER, AS RIGHTLY ARGUED BY THE LD. A.R, THE LAW DOES NOT CON TEMPLATE THE IDENTITY OF THE FUNDS FOR INVESTMENTS IN CONSTRUCTION OF NEW HO USE OF RESIDENTIAL PROPERTY. IF THE ASSESSEE STARTED THE CONSTRUCTION BEFORE THE TRANSFER OF PROPERTY BY BORROWING THE FUNDS, THE ASSESSEE CANNO T BE PRECLUDED FROM CLAIMING DEDUCTION U/S.54 OR U/S.54F OF THE ACT. T HIS VIEW WAS FORTIFIED BY THE DECISION OF CO-ORDINATE BENCH OF TRIBUNAL IN T HE CASE OF MUNEER KHAN VS. ITO IN [2010] 41 SOT 504 (ITAT[HYD]). BEING SO , WE ARE OF THE OPINION THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S.54 OR U/S.54F OF THE ACT FOR THE ENTIRE COST OF THE CONSTRUCTION INCURRED BY THE ASSESSEE AND NOT ANY PART. FURTHER, SIMILAR CONSISTENT VIEW WAS ALSO TAK EN BY CHENNAI TRIBUNAL IN THE CASE OF MR.C.ARYA SUNDARAM FOR ASSESSMENT YEAR :2010-11 IN I.T.A.NO.1208/MDS./2015 VIDE ORDER DATED 27.12.201 6. ACCORDINGLY, THIS GROUND RAISED BY THE ASSESSEE IS ALLOWED. ACCORDINGLY, IN PRINCIPLE, WE ARE AGREEING THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S.54 OF THE ACT. HOWEVER, THE ASSES SEE HAS TO PLACE NECESSARY BILLS/VOUCHERS AND TO SUBSTANTIATE THE IN CURRING COST TOWARDS CONSTRUCTION OF FURTHER FLOORS IN THE EXIST ING RESIDENTIAL ITA NO. 1188/MDS/2015 9 BUILDING AND THE AO HAS TO VERIFY THE SAME AND DECI DE IN ACCORDANCE WITH THE ABOVE PROPOSITION. 5. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 03 RD JULY , 2017. SD/- ( ) ( CHANDRA POOJARI ) /ACCOUNTANT MEMBER CHENNAI, DATED THE 03 RD JUNE, 2017 . K S SUNDARAM. ' ( )!*+ ,+%! / COPY TO: 1 . / APPELLANT 3. ' ' -! () / CIT(A) 5. +0 1 )!)23 / DR 2. / RESPONDENT 4. ' ' -! / CIT 6. 1 45 6 / GF